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19. In reply to the show cause notice the assessee submitted that as per Schedule 14 to the notes to accounts, details of 'Short term loans & advances' are given in the audited accounts and as per audited books of accounts a sum of Rs. 46,09,34,000/- is shown as 'share application money'. As far as advances of Rs. 4.62 crores are made, these advances have been given to associates/sister concern of the assessee company in the normal course of business out of the fund sourced from internal accruals like credit balance in sundry creditors viz BMA Wealth Creators Ltd. The assessee has taken interest bearing loan to the tune of Rs.42.32 crores out of which Rs.18.05 cores have been utilized on interest bearing advances and the rest of Rs. 24.29 crores have been used for business purpose in the form of dealing in shares and securities (including share application money, forming part of trade in shares and M/s. Snowtex Investment Ltd securities. The assessee company is a non-banking finance company, registered with the RBI and is engaged in the business of purchase and sale of shares. To substantiate this the assessee company submitted the object clause of Memorandum of Association of the company, which reads as under:

24. We have heard both the parties and perused the material available on record. We note that assessee company was availing stock broking services from BMA Wealth Creator Ltd, a sister concern of the assessee company. As such, the ledger of BMA Wealth Creator Ltd was grouped under the head "Trade Payables" in the books of the assessee. However, during the M/s. Snowtex Investment Ltd year, in the normal course of business, the assessee company had also received interest free advances from BMA Wealth Creator Ltd and part of these advances were repaid as and when funds were available with the assessee company. The assessee used to maintain two different ledgers namely BMA Wealth Ltd - Loan account and BMA Wealth Creator Ltd - Creditors account. A copy of both the ledgers was submitted by the assessee during the appellate proceedings (vide 82-88 of the Paper Book). As at the end of the year, the amount of short term advances taken from BMA Wealth Creator Ltd stood at Rs. 31,00,67,000/- and the amount of trade payables was Rs.91,26,037/-, thus aggregating to Rs.31,91,93,037/- (Rs. 31,00,67,000 + Rs.91,26,037). However, in the accounting software used by the assessee for preparing the accounts, both the ledgers were inadvertently grouped under the head "Trade Payables" instead of segregating the same between "Trade Payables" and "Short Term Loans and Advances"'. Hence, the entire amount of Rs.31,91,93,037/- was shown under the head "Trade Payables" and accordingly was reflected as such in the Audited Accounts. However, the wrong grouping done by assessee does not alter the nature of the transaction entered into with BMA Wealth Creator Ltd. The entire outstanding amount of Rs.31,00,67,000/- was received by the assessee during the year as interest free advances from BMA Wealth Creator Ltd. The same is evident from the ledger copy attached at Page 82-86 of the Paper Book. The said interest free advance was deployed by the company in making the fresh investments of Rs.30,71,74,000/- in share application money and interest free loans. Since no part of the interest bearing loan funds were diverted for the purpose of investment in share application money and granting of interest free loans, no part of the interest expense can be disallowed.

We are of the view that the above cited precedents on principle of consistency are squarely applicable to the assessee under consideration and therefore ld CIT(A) has rightly deleted the addition.

26. We note that in the present case, the learned AO observed that the interest expense claimed by the assessee net of interest income was Rs.3,59,52,944/-. He disallowed the entire net interest expense of Rs.3,59,52,944/- and added back to the income of the assessee. In doing so, the learned AO proceeded on the alleged premise as if the entire loan bearing funds taken net of interest bearing loans given during the year were diverted for the purpose of non- business activity only. At the outset itself, the learned counsel for the assessee brought to our notice that the assessee had interest free funds and the assessee has utilized said interest free fund. The entire outstanding amount of Rs.31,00,67,000/- was received by the assessee during the year as interest free advances from BMA Wealth Creator Ltd. Therefore, applying the ratio laid by the Hon'ble Bombay High Court in Reliance Utility and Powers Ltd. vs CIT 312 ITR 340 (Bom.) wherein their lordship held where the assessee is possessed of mixed funds which includes its own funds in sufficient quantity, the presumption that its own funds were utilized for the advances is to be drawn. We note that the Ld. CIT(A) has not appreciated the fact that the assessee had its own interest free funds which were received by the assessee during the year as interest free advances from BMA Wealth Creator Ltd. We note that in case there are both interest bearing loans and interest free loans a presumption would arise that investments were made out of the interest-free funds available with the company, if the interest-free funds were sufficient to meet the investments. For that we also rely on the judgment of the Hon`ble Calcutta High Court in the case of Woolcumbers of India Ltd vs CIT (134 ITR 219)(Calcutta High Court), wherein it was held as follows: